UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1998
THE MORGAN GROUP, INC.
2746 Old U. S. 20 West
Elkhart, Indiana 46515-1168
(219) 295-2200
Delaware 1-13586 22-2902315
(State of (Commission File Number) (I.R.S. Employer
Incorporation) Identification Number)
The Company (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports).
and (2) has been subject to such filing requirements for the past 90 days.
The number of shares outstanding of each of the Company's classes of common
stock at April 30, 1998 was:
Class A - 1,438,000 shares
Class B - 1,200,000 shares
<PAGE>
The Morgan Group, Inc.
INDEX
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 3
Consolidated Statements of
Operations for the Three Month Periods
Ended March 31, 1998 and 1997 4
Consolidated Statements of
Cash Flows for the Three Month Periods Ended
March 31, 1998 and 1997 5
Notes to Consolidated Financial 6 - 7
Statements as of March 31, 1998
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II OTHER INFORMATION 11
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
PART I FINANCIAL INFORMATION
The Morgan Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
ASSETS (unaudited)
----------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 137 $ 380
Trade accounts receivable, less allowance for doubtful
accounts of $202 in 1998 and $183 in 1997 14,864 13,362
Accounts receivable, other 245 126
Refundable taxes 537 263
Prepaid expenses and other current assets 2,566 2,523
Deferred income taxes 1,095 1,095
-------- --------
Total current assets 19,444 17,749
Property and equipment, net 4,417 4,315
Intangible assets, net 8,302 8,451
Deferred income taxes 767 767
Other assets 1,361 1,464
-------- --------
Total assets $ 34,291 $ 32,746
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Note payable to bank $ 3,515 $ 2,250
Trade accounts payable 4,403 3,410
Accrued liabilities 5,497 4,966
Accrued claims payable 2,125 2,175
Refundable deposits 1,375 1,666
Current portion of long-term debt 764 1,153
-------- --------
Total current liabilities 17,679 15,620
Long-term debt, less current portion 1,272 1,360
Long-term accrued claims payable 2,921 3,042
Commitments and contingencies - - - - - - - -
Shareholders' equity:
Common stock, $.015 par value
Class A: Authorized shares - 7,500,000
Issued shares - 1,605,553 23 23
Class B: Authorized shares - 2,500,000
Issued and outstanding shares - 1,200,000 18 18
Additional paid-in capital 12,453 12,453
Retained earnings 1,887 2,160
-------- --------
Total capital and retained earnings 14,381 14,654
Less - treasury stock at cost 171,043 and
167,643 Class A shares (1,458) (1,426)
- loan to officer for stock purchase (504) (504)
-------- --------
Total shareholders' equity 12,419 12,724
-------- --------
Total liabilities and shareholders' equity $ 34,291 $ 32,746
======== ========
</TABLE>
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share amounts)
(Unaudited)
Three Months Ended
March 31,
1998 1997
-------- --------
Operating revenues:
Manufactured housing $ 21,224 $ 19,669
Driver outsourcing 5,367 4,889
Specialized transport 4,323 6,137
Other service revenue 3,057 2,938
-------- --------
Total operating revenues 33,971 33,633
Costs and expenses:
Operating costs 31,655 30,675
Selling, general and administrative 2,368 2,233
Depreciation and amortization 295 294
-------- --------
34,318 33,202
Operating (loss) income (347) 431
Interest expense, net 144 131
-------- --------
Income (loss) before income taxes (491) 300
Income tax expense (benefit) (260) 34
-------- --------
Net income (loss) $ (231) $ 266
======== ========
Net income (loss) per common share:
Basic and Diluted:
Class A common stock $ (0.08) $ 0.10
======== ========
Class B common stock $ (0.09) $ 0.09
======== ========
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------- -------
Operating activities:
<S> <C> <C>
Net income (loss) $ (231) $ 266
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 295 303
Gain on disposal of property and equipment (13) (21)
Changes in operating assets and liabilities:
Trade accounts receivable (1,502) (3,483)
Other accounts receivable (119) (214)
Refundable taxes (274) 21
Prepaid expenses and other current assets (43) 718
Other assets 103 (117)
Trade accounts payable 993 988
Accrued liabilities 531 (437)
Accrued claims payable (171) 442
Refundable deposits (291) (553)
------- -------
Net cash used in operating activities (722) (2,087)
Investing activities:
Purchases of property and equipment (255) (189)
Proceeds from sale of property and equipment 20 48
Business acquisitions - - - (37)
------- -------
Net cash used in investing activities (235) (178)
Financing activities:
Net proceeds from notes payable to bank 1,265 3,100
Principle payments on long-term debt (477) (931)
Purchase of treasury stock (32) (38)
Common stock dividends paid (42) (42)
------- -------
Net cash provided by financing activities 714 2,089
------- -------
Net decrease in cash and equivalents (243) (176)
Cash and cash equivalents at beginning of period 380 1,308
------- -------
Cash and cash equivalents at end of period $ 137 $ 1,132
======= =======
</TABLE>
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1998
Note 1.Basis of Presentation
The accompanying consolidated interim financial statements have been
prepared by The Morgan Group, Inc. and Subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulation. The consolidated interim financial
statements should be read in conjunction with the financial statements,
notes thereto and other information included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
The accompanying unaudited consolidated interim financial statements
reflect, in the opinion of management, all adjustments (consisting of
normal recurring items) necessary for a fair presentation, in all
material respects, of the financial position and results of operations
for the periods presented. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company, MDA Corporation, and Morgan Finance,
Inc., all of which are wholly owned. Significant intercompany accounts
and transactions have been eliminated in consolidation.
Note 2. Recent Accounting Pronouncements
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income".
SFAS No. 130 established standards for reporting and display for
comprehensive income and its components in a full set of general
purpose financial statements. There is no difference between
comprehensive income and net income for the quarters ended March 31,
1998 and 1997.
Note 3. Indebtedness
The Company, on March 25, 1998, replaced the previous credit facility
with a $15,000,000 revolving line of credit that matures on April 30,
2001. Additionally, the Company obtained from the same bank an
$8,000,000 facility for letters of credit which expires on April 30,
1999. Revolving credit borrowings are limited to 80% of qualified trade
accounts receivable. These facilities provide financing for working
capital needs, letters of credit, and general corporate needs.
Interest on the line of credit is determined at the Company's option at
the time of the borrowing, based on the bank's prime rate or until
December 31, 1998 at the London Interbank Offering Rate ("LIBOR"), plus
165 basis points. The LIBOR rate will be adjusted after December 31,
1998. The letter of credit rate is the applicable LIBOR margin rate.
<PAGE>
The agreement required payment of a closing fee of $25,000 and a
facility fee of 25 basis points payable quarterly on the $15,000,000
revolving line of credit. The Company is to maintain certain minimum
levels of net worth and a debt to net worth and interest coverage
ratio. Borrowings are secured by trade accounts receivable,
transportation equipment, office and service equipment, and general
intangible assets.
Note 4. Net Income (Loss) Per Common Share
Net income (loss) available to each class of common stock is determined
by adding together the amount of applicable dividends declared and the
amount of undistributed earnings (loss) allocated. Undistributed
earnings (loss) is allocated to each class of common stock equally per
share.
Net income (loss) applicable to common stocks is the same for the basic
and diluted EPS computations for all periods presented. The following
table reconciles basic and diluted earnings per share (dollars in
thousands, except share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(unaudited)
1998 1997
----------- -----------
<S> <C> <C>
Allocation of net income (loss) to common stocks:
Class A Stock:
Dividends $ 30 $ 30
Allocation of undistributed earnings (loss) (149) 124
----------- -----------
Net income (loss) applicable to Class A stock-basic and diluted $ (119) $ 154
----------- -----------
Class B Stock:
Dividends $ 12 $ 12
Allocation of undistributed earnings (loss) (124) 100
----------- -----------
Net income (loss) applicable to Class B stock-basic and diluted $ (112) $ 112
----------- -----------
Net income (loss) $ (231) $ 266
=========== ===========
Weighted average shares outstanding:
Class A stock:
Basic 1,436,214 1,482,601
Dilutive effect of stock options 9,563 1,387
----------- -----------
Diluted 1,445,777 1,483,988
=========== ===========
Class B stock-basic and diluted 1,200,000 1,200,000
=========== ===========
Class A basic and diluted EPS $ (0.08) $ 0.10
=========== ===========
Class B basic and diluted EPS $ (0.09) $ 0.09
=========== ===========
</TABLE>
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Morgan Group, Inc. is the nation's largest service company managing the
delivery of manufactured homes, trucks, specialized vehicles, and trailers in
the United States. Morgan provides outsourcing transportation services
principally through a national network of independent owner operators. The
Company dispatches its drivers from approximately 120 locations in 35 states.
The Company's services also include providing certain insurance and financing
services to its owner operators. The Manufactured housing group provides
specialized transportation to companies which produce new manufactured homes,
modular homes, and office trailers. In addition, the Manufactured housing
group transports used manufactured homes and offices. The Driver outsourcing
group provides drivers to customers to deliver commercial trucks and
recreational vehicles. The Specialized transport group moves a variety of
specialized vehicles, including semi-trailers, military vehicles, travel
trailers and other commodities by utilizing specialized equipment.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of operations data
to revenue for the periods indicated.
Three Months Ended
March 31,
(Unaudited)
1998 1997
------ ------
Statement of Operations Data:
Operating revenue 100.0% 100.0%
Operating costs 93.1 91.2
Selling, general and administration 7.0 6.6
------ ------
Depreciation and amortization .9 .9
Operating (loss) income (1.0) 1.3
Interest expense, net .4 .4
------ ------
Income (loss) before income taxes (1.4) .9
Income tax expense (benefit) (.7) .1
------ ------
Net income (loss) (.7)% .8%
====== ======
Operating revenues for the first quarter increased from $33.6 million in 1997,
to $34.0 million in 1998. The first quarter of 1997 included $2.6 million of
revenue from the discontinued truckaway operation which was part of Specialized
transport. The increase was primarily in Manufactured housing operating
revenues, which increased from $20.0 million in the first quarter of 1997 to
$21.2 million for the same period in 1998. The Manufactured housing group
principally experienced increased volume with the existing customer base in the
first quarter of 1998. Driver outsourcing operating revenues also increased from
$4.9 million in the first quarter of 1997 to $5.4 million for the same period in
1998.
Operating costs as a percent of operating revenue increased from 91.2% in the
first quarter of 1997 to 93.1% in the first quarter of 1998. The first quarter
of 1998 was adversely affected by bodily injury and cargo claims, as well as
expenditures for professional staff and other infrastructure, particularly to
support the Specialized transport group. Conversely, the Company had an
excellent claim experience in the first quarter of 1997.
Selling, general and administration expenses increased from 6.6% of operating
revenue in the first quarter of 1997 to 7.0% in the first quarter of 1998,
primarily due to increased data processing costs and bad debts expense.
<PAGE>
The operating loss was 1.0% of operating revenues in the first quarter of 1998
compared to operating income of 1.3% in 1997. The income tax benefit was
$260,000 in the first quarter of 1998 compared to the $34,000 income tax
provision in the first quarter of 1997.
The net loss in the first quarter of 1998 was $231,000 (Class A $0.08 and Class
B $0.09 per basic and diluted share). The net income in the first quarter of
1997 was $266,000 (Class A $0.10 and Class B $0.09 per basic and diluted share).
Shipments of manufactured homes tend to decline in the winter months in areas
where poor weather conditions inhibit transport. This usually reduces operating
revenues in the first and fourth quarters of the year. Recreational vehicles and
travel trailer movements are generally stronger in the spring, when dealers
build stock in anticipation of the summer vacation season, and late summer and
early fall when new vehicle models are introduced. The Company's operating
revenues, therefore, tend to be stronger in the second and third quarters.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $380,000 as of December 31, 1997 to
$137,000 as of March 31, 1998, while debt levels increased $788,000. Cash was
used during the first quarter of 1998 to finance trade accounts receivable
growth of $1.5 million associated with strong March operating revenues. While
the Company has historically used cash in operations in the first quarter of
each year, this use in 1998 was $1.3 million less than in the prior year period.
This improvement in cash management was due to accelerated trade accounts
receivable collections and more stringent treasury management. The increase in
trade accounts receivable was partially offset by increases in trade accounts
payable and accrued liabilities.
Trade accounts receivable days sales outstanding (DSO) decreased from 37 days at
December 31, 1997 to 31 days at March 31, 1998.
The Company, on March 25, 1998, entered into a $15.0 million revolving line of
credit which matures on April 30, 2001. Additionally, the Company has obtained
from the same bank an $8.0 million facility for letters of credit which expire
on April 30, 1999. Revolving credit borrowings are limited to 80% of qualified
trade accounts receivable. These facilities provide financing for working
capital needs, letters of credit, and general corporate needs. The Company at
March 31, 1998 had $7.3 million of unused credit under the revolving credit
agreement.
The Company is focused on reducing overhead, including selling, general and
administration expense, and redundant operating costs. Management has also
initiated processes to expedite customer billings and collections to improve
cash flow. It is management's opinion that the Company's foreseeable cash
requirement will be met through a combination of improved internally generated
funds and the credit available from the new facility.
FORWARD LOOKING DISCUSSION
This report contains a number of forward-looking statements. From time to time,
the Company may make other oral or written forward-looking statements regarding
its anticipated operating revenues, costs and expenses, earnings and other
matters affecting its operations and condition. Such forward-looking statements
are subject to a number of material factors which could cause the statements or
projections contained therein to be materially inaccurate. Such factors include,
without limitation, the risk of declining production in the manufactured housing
industry; the risk of losses or insurance premium increases from traffic
accidents; the risk of loss of major customers; risks of competition in the
recruitment and retention of qualified drivers in the transportation industry
generally; risks of acquisitions or expansion into new business lines that may
not be profitable; risks of changes in regulation and seasonality of the
Company's business. Such factors are discussed in greater detail in the
Company's Annual Report on Form 10-K for 1997 under Part I, Item 1, Business 7.
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibis are included herein:
Exhibit 27.1 - Financial Data Schedule for the Quarter Ended
March 31, 1998
Exhibit 27.2 - Restated Financial Data Schedule for the Quarter
Ended March 31, 1997
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which
this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MORGAN GROUP, INC.
BY: /s/ Dennis R. Duerksen
------------------------------
Dennis R. Duerksen
Chief Financial Officer
Date: May 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
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<NAME> The Morgan Group, Inc.
<MULTIPLIER> 1,000
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 137
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<COMMON> 41
0
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<OTHER-SE> 12,378
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<SALES> 33,971
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<LOSS-PROVISION> 69
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> (491)
<INCOME-TAX> (260)
<INCOME-CONTINUING> (231)
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<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<NAME> The Morgan Group, Inc.
<CIK> 0000906609
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